Chinese demand outweighs appreciating dollar

fine wool 14 micron closeup

In the same week that US President Joe Biden and Chinese President Xi Jinping met in San Francisco at the APEC summit, US and Chinese market forces also came face to face in the Australian wool market as the Eastern Market Indicator rose 2% week on week.

The fortunes of the wool market are tied to our trade partners, and from late last week the market’s momentum looked threatened by news out of the US.  An appreciation in the Australian dollar midweek after US inflation data showed improvement would typically impact affordability from a buyer’s perspective. Fortunately for sellers this week, Chinese demand was heightened and a reduced offering meant the fundamentals were strong enough to overcome exchange rate movements.

The result was all Merino categories improving and a 23ȼ increase in the Eastern Market Indicator (EMI) to sit at 1151 ȼ/kg. In US dollar terms the EMI finished at 748 ȼ/kg, 3.4% higher week on week.  Outside of the previously mentioned drivers, the national offering ended up 5k bales lower than initial estimates last week and this supply-side relief likely assisted as the pass-in rate nationally was down to 5.7%.  37,926 bales were sold this week nationally which was just marginally below the weekly seasonal average of 38,903. 

In Sydney, 18.5MPG rose 54ȼ  to 1498ȼ/kg and 17MPG increased 40ȼ to 1747ȼ/kg.  Further south to  Melbourne, demand was also strong, as 17MPG jumped 51 ȼ to 1736 ȼ/kg and 18.5MPG jumped 41ȼ to 1487 ȼ/kg.  The Western Market Indicator (WMI) rose 27ȼ to 1294ȼ/kg after another strong week.

Crossbred wool did not see the same bump this week, with Melbourne 26MPG losing 9ȼ  to 571 ȼ/kg.  As Investigated this week by Andrew Woods, Crossbred wool’s seasonal proportion of Australian auction volumes is at its smallest in September (which spurred on the most recent rally in pricing) and as we approach Summer, supply will be a dampener on crossbred prices through to the next Australian autumn.

Next week

Next week’s forecast offering is again expected to be around 45k bales nationally which would be a stark contrast to what markets typically handle this time of year (Figure 2). If the 45K offering eventuates then it will be an interesting test of demand. All three centres will be selling Tuesday and Wednesday.

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Data sources: AWEX| Mecardo

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